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Cryptocurrency ETF

What Is a Cryptocurrency ETF?

A cryptocurrency exchange-traded fund (ETF) works, in theory, like any other ETF. While most ETFs track an index or a basket of assets, a cryptocurrency ETF would track one or more digital tokens. Like other ETFs, digital token ETFs would trade like a common stock on an exchange, and they would be subject to changes in price throughout the day as investors buy and sell.

  • ETFs could be a remedy to many of the barriers preventing mainstream investors from entering the cryptocurrency market.

  • Cryptocurrency ETFs could track a single cryptocurrency or a basket of different digital tokens and currencies.

  • Cryptocurrency ETFs are already trading in a number of countries, but so far regulators in the U.S. have denied multiple attempts to offer such products on exchanges.

  • There are a number of alternatives on the market that allow for exposure to cryptocurrency without requiring investors to manage the digital assets themselves, however, these options are inferior in many regards to traditional ETFs.

  • Blockchain funds enable investments in companies that are closely connected to the cryptocurrency market and thus allow indirect investment in the space.

How a Cryptocurrency ETF Works

In order for a cryptocurrency ETF to work properly, the organization managing the fund needs to own the underlying assets that it tracks. In other words, the ETF would have to own a commensurate stake of digital tokens. The ownership of these tokens would then be represented as shares, and by buying these shares investors in the ETF would indirectly own those tokens. ETF investors would then gain exposure to the upside potential of the underlying assets.